CPP - Module 6
When can S125 plan benefits change?
May be changed by employees before the beginning of the plan year, when there is an IRS approved status change or a cost or a coverage change.
How are S125 plan benefits reported?
Nontaxable S125 plan benefits are not reported on W2 or on 941.
What is the FSA uniform coverage?
To meet the FSA's Uniform coverage rule, an employer must reimburse an employee for eligible expenses up to the employee's election even though the employee's contribution have yet to be made.
Under the concentration test, a cafeteria plan is not discriminatory if benefits provided to key employees do not exceed:
25% - The concentration test for cafeteria plans determine if the nontaxable benefits given to key employees do not exceed 25% of such benefits given to all employees participating in the plan.
Medical FSA contribution limits -
An employee's medical FSA salary reduction contributions cannot exceed 2700.00 in a plan year.
What is the FSA use it or lose it rule?
An employee's reimbursement contributions for contributions to an FSA during plan year must be eligible and substantiated expenses during the plan year. Contributions that are not substantiated are lost.
A cafeteria plan may be funded by any of the following EXCEPT:
Benefit Exchange dollars - IRS rules allow Section 125 cafeteria plans and other flexible benefit plans providing qualified benefits to be funded with flex dollars or flex credits, salary reductions, or after-tax employee contributions.
The employee has heart surgery on December 1, 2019 and is on unpaid Family Medical Leave Act leave until March 1, 2020. How can the employee pay the health insurance premiums through the cafeteria plan?
By pre-paying the health insurance premium ($140.00) for the remainder of the plan year before December 1, 2019, and catching up 2020's the health insurance ($280.00) after returning to work - When a FMLA unpaid absence occurs in two cafeteria plan years, the employee must pay 2019's $140.00 premium before going on unpaid FMLA and 2020's $280.00 premium after returning from unpaid FMLA to have the health insurance premium paid pre-tax. The regulations do not allow an employer to require the employee make this choice.
IRC §125 Cafeteria plans are generally funded by all of the following mechanisms EXCEPT:
COBRA - Cafeteria plans and other flexible benefit plans are generally funded by either of the following mechanisms: "flex dollars" or "flex credits", salary reduction, or after tax contributions.
Which of the following statements is true about Sec. 125 plans?
Cafeteria plans must provide the employee the ability to choose between taxable and nontaxable benefits.
An employee's child loses eligibility for plan benefits on July 15, 2019. The employee wants to change 2019's Medical FSA election of $1,620.00 to $1,520.00. Is this change allowed and under condition?
The change is allowed, as it is a change in the number of dependents.
Under the concentration test, a cafeteria plan is not discriminatory if benefits provided to key employees do not exceed:
The concentration test for cafeteria plans determine if the nontaxable benefits given to key employees do not exceed 25% of such benefits given to all employees participating in the plan.
An employee has elected to have $200.00 per month contributed to a medical flexible spending account. At the end of the plan year's grace period, $100.00 remains in the account. What happens to the $100.00?
The employer can use the amount to offset any administrative expenses in connection with the program - Any amount in a health FSA that remains unused at the end of the plan year generally is forfeited by the employee. When an employee loses contributions at the end of the grace period due to the failure to incur eligible expenses, the employer may use the lost amounts to cover administrative expenses or allocate it on a uniform basis to eligible employees for the next plan year. When using the $500 carryover provision for unused amounts, the cafeteria plan must be amended. If the unused amount is paid to the employee, it is included in the employee's income.
An employee has elected to have $200.00 per month contributed to a medical flexible spending account. At the end of the plan year's grace period, $100.00 remains in the account. What happens to the $100.00?
The employer can use the amount to offset any administrative expenses in connection with the program. - Any amount in a health FSA that remains unused at the end of the plan year generally is forfeited by the employee. When an employee loses contributions at the end of the grace period due to the failure to incur eligible expenses, the employer may use the lost amounts to cover administrative expenses or allocate it on a uniform basis to eligible employees for the next plan year. When using the $500 carryover provision for unused amounts, the cafeteria plan must be amended. If the unused amount is paid to the employee, it is included in the employee's income.
Qualified expenses under a Health Flexible Spending Arrangement incurred for over-the-counter medicine or drugs (except insulin) require:
a prescription - Under IRS rules, qualified expenses under a Medical Health Flexible Spending Arrangement include over-the-counter medicine or drugs (except insulin) when the expense is documented by a prescription
All of the following factors define a key employee in cafeteria plan nondiscrimination testing EXCEPT:
any employee with compensation exceeding $120,000 - When determining the key employees for a cafeteria plan's nondiscrimination testing, include corporate officers whose prior year earnings were more than $175,000, 5% owners, and 1% owners whose prior year earnings were more than $150,000.
All of the following factors define a key employee in cafeteria plan nondiscrimination testing EXCEPT:
any employee with compensation exceeding $120,000. - When determining the key employees for a cafeteria plan's nondiscrimination testing, include corporate officers whose prior year earnings were more than $175,000, 5% owners, and 1% owners whose prior year earnings were more than $150,000.
Under FSA rules, the uniform coverage provision only applies to a(an):
health care plan - In a health flexible spending account, the uniform coverage rule requires the maximum amount of reimbursement selected by the participating employee (that is, the total of the employee's payments for the plan year) must be available to the employee at all times during the plan year.
S125 Discrimination tests
plan must meet eligibility, contribution and benefits and concentration tests to demonstrate it does not discriminate in favor of highly compensated or key employees.
All of the following qualified benefits can be offered under a Sec. 125 plan EXCEPT:
qualified transportation fringe benefits - IRC Section 125 allows cafeteria plans the ability to provide nontaxable benefits, such as medical flexible spending accounts, additional vacation days, and contributions to 401(k) plans. In most cases, benefits that are excluded from income under other IRC provisions, such as qualified transportation fringe benefits, cannot be provided in a Section 125 Cafeteria Plan.
Under a Sec. 125 plan, all of the following benefits are qualified benefits EXCEPT:
scholarship and fellowship grants - IRC Section 125 allows cafeteria plans the ability to provide nontaxable benefits, such as medical coverage, additional vacation days, and contributions to 401(k) plans. In most cases, benefits that are excluded from income under other IRC provisions, such as employee discounts, and scholarship and fellowship grants cannot be provided in a Section 125 Cafeteria Plan.
A health care flexible spending account may allow a $500 carryover if:
the plan does not have a grace period. - Under Section 125, a cafeteria plan health care Flexible Spending Account may allow a $500 carryover from one plan year to the next plan year if the plan does not have a grace period. A medical flexible spending account can have either the carryover or grace period, but not both.
IRC §125 generally prohibits the deferral of compensation from one plan year to the next. The exception to this rule includes all of the following benefits EXCEPT for:
the purchased vacation days -While a cafeteria plan may offer employees the option of purchasing additional vacation leave with pre-tax dollars, the leave becomes taxable when taken and is subject to several restrictions related to the ban of deferred compensation including being carried over into the next plan year.